(a) What are the advantages of using analytical procedures as substantive tests? (b) If the engagement team decides to use analytical procedures for the Bees’ audit, how will the audit plan differ from prior years? (c) Discuss whether you believe analytical procedures should be used as substantive tests for the Bees 2018 audit?

Question

What will be an ideal response?

Answer 1

a) Auditors are continuously assessing the effectiveness and efficiency of audit procedures. Analytical
procedures are generally much more efficient than tests of details. Obviously, the auditor does not
wish to sacrifice effectiveness. Fortunately, analytical procedures can also be very effective tests.
In some instances analytical procedures can even be more effective than tests of details. AU-C
329.12 provides the following example: “Comparisons of aggregate salaries paid with the number
of personnel may indicate unauthorized payments that may not be apparent from testing individual
transactions.” Thus analytical procedures, if designed properly and if based on reliable data, can be
both efficient and effective substantive tests.
As noted earlier, this case is based loosely on an actual audit engagement of a major league
baseball franchise. In the actual case the senior auditor developed substantive analytical procedures,
which proved to be extremely powerful and effective. The analytical procedures replaced a
significant amount of other detail testing while maintaining the level of achieved audit risk. The
reduction in audit hours dramatically improved the audit’s profitability. The senior received high
praise and was promoted to manager early largely as a result of her performance on the audit of
the baseball engagement.
b) The nature, timing and extent of audit testing would change if the auditors decided to use analytical
procedures as substantive tests. Obviously, the audit plan will specify the use of analytical procedures.
In addition, the audit plan will likely include fewer, less extensive, and/or different tests of details.
The actual effect on the audit plan will depend on the results. Based on the difference between
the recorded and expected balance and considering the precision with which the expectation was
developed, the auditor would determine the desired nature, timing, and extent of further audit
testing.
c) Most students believe analytical procedures should be used as a substantive test for the Bees audit.